All competent securities lawyers know that Item 5.02(d) of Form 8‑K requires a filing, on Form 8‑K, whenever a public company elects a new director other than pursuant to a shareholder vote at an annual meeting or a special meeting that was convened for that purpose. That requirement typically does not present any compliance problems. The information required to be disclosed is fairly straight forward, and most companies usually obtain and prepare the relevant information for purposes of a press release or other public disclosure as part of the transaction or other corporate event leading to the election of the new director.
So, no big deal, unless one forgets that no such press release or other public disclosure ─ including, for example, a merger proxy statement ─ satisfies the Item 5.02(d) filing requirement. And, there is at least one significant adverse consequence of a missed Form 8‑K ─ i.e., Form S‑3 eligibility.
For most companies with even a modestly sophisticated capital structure, eligibility to use Form S‑3 to register securities is an important element of its ongoing securities issuance compliance regime. And, a baseline eligibility requirement for use of Form S‑3 is that a company be current with all filings under the Securities Exchange Act of 1934, as amended, for the past 12 months. Missing even a seemingly innocuous Form 8‑K filing will fail that test.
A disarming context that has led to more than a few instances of unwitting Item 5.02(d) non‑compliance is where a public company acquires a privately held business and elects as a new director a person who was involved with the privately held acquisition target. In that context, the company typically files a Form S‑4 registration statement that includes a proxy statement (if the acquisition consideration includes issuing stock to the target’s owners), or a proxy statement otherwise if the acquiror’s shareholders must approve the acquisition transaction. (For convenience, we assume the acquisition is structured as a merger, and we refer to the transaction‑related disclosure document as a “merger proxy statement”. The same issues discussed here are present regardless of that deal structure.)
Good and customary disclosure by the company in its merger proxy statement will include that the person associated with the target is being elected as a new director as part of consummating the merger, and that person’s background information will be included in the merger proxy statement. Also, as a part of typical corporate governance and disclosure hygiene, the planned election of such a new director will likely be included as part of the company’s press release to announce the upcoming merger and/or the meeting being held to approve it. In any case, the information provided to the public about the new director is likely to cover everything required, as a matter of substance, by Item 5.02(d).
Even more disarming is where a Form 8‑K is required and has been filed, pursuant to Item 1.01, to disclose the anticipated merger, with information about the planned election of the new director expressly included as part of that disclosure. And, the merger is thereafter approved and consummated as so disclosed.
Ah, but there’s the rub. Unless a Form 8‑K is timely filed after consummation of the merger, and the election of the new director is disclosed in that Form 8‑K, the Item 5.02(d) requirement has not been met. Not even a Form 8‑K filing pursuant to Item 2.01 (to disclose completion of the merger) will be sufficient for Item 5.02(d) compliance purposes, if the loop is not closed by referring expressly to the new director’s actual election as previously anticipated. After all, there can be last minute changes in the deal.
In that context, compliance with the Item 5.02(d) requirement is ripe for being overlooked. After all, the public has been informed, conspicuously and, probably, on multiple occasions, that the subject person would be elected as a new director of the company if and when the merger is completed, and the public has been informed by the Item 2.01 filing that the merger is effective. What could possibly have been missed? Well, the prescribed Item 5.02(d) filing, that’s what.
We have no empirical data, but we have great confidence, that there are many missed Form 8‑K filings in such an acquisition context. We believe that many go unrecognized, and that they won’t be recognized, unless there is a later, specific occasion – such as the due diligence process for a future, unrelated transaction – to test for Form S‑3 eligibility. That is not a good time to make the discovery. So, make sure the Item 5.02(d) filing is a specific, post‑consummation item on the comprehensive checklist for managing the transaction.
That said, in a pinch, it might be possible to obtain a de facto waiver from the Staff of the SEC. We are aware that the Staff of the Division of Corporation Finance has taken a verbal “no objection” position with respect to a company’s use of Form S‑3 notwithstanding a missed Item 5.02(d) filing in a situation analogous to that described above. We believe the Staff’s position was based on a compelling demonstration by the company of “no harm, no foul” because the company had otherwise provided a conspicuous, substantially equivalent, timely disclosure of the same information. But, don’t plan on such an outcome; remember the Item 5.02(d) filing.